No it isn’t a joke, and it isn’t hearsay; Alan Greenspan did say it in front of millions of viewers:
The United States can pay any debt it has because we can always print money to do that.
So, sleep well, creditors, it isn’t an issue of credit rating. You will all have your money back, 100% guarantee. You are investing in the most reliable and profitable business of all time, the printing presses of the Federal Reserve. You invest a million dollars, we can print and give you back a trillion. Spiffy, ain’t it? Don’t worry about economic recessions, falling stocks, rising gold prices, unemployment; don’t worry about the capability of the economy to sustain such high debt levels. After all, debt and money is not about real values, it is about ethereal numbers; and ethereal numbers is what we central bankers are best at.
Now, of course, if I borrowed money from Alan Greenspan, spent it on real services and goods, and then printed money to pay him back, I would have been guilty of counterfeiting. I would have produced nothing of real value, only used his money to consume, and there wouldn’t have been any real value behind the money I have printed. My actions would have amounted to theft. But if the US government does it, that’s okay. Greenspan is telling the creditors of the US government that while the money borrowed from them would be used to buy real value in goods and services, what the creditors will received at the end will be counterfeit money. It’s not “default,” you know, it’s just we are paying you back with worthless numbers – inflated money that has lost its value in real world goods and services.
S & P was wrong. AA+ is too high a rating for a nation whose former chief central banker openly admits that borrowed funds are repaid with inflated money. Such practice is called “theft.” I wonder how many creditors would be excited to lend their money after such a statement.
And I can foresee future creditors of the US changing the rules of the game by lending gold equivalents to the US government instead of worthless dollars. We lend you gold, we want the debt repaid in gold. And let Greenspan then say that “we can produce gold to repay our debt.” Gold has that wonderful quality to defy attempts at counterfeiting by government bureaucrats. It may get Greenspan back to his senses, if we give it a chance.
But there is something more in his statement. Yes, foreign creditors do take a hit when more dollars are printed to repay the US debt. But the real hit is taken by the producers and consumers here in the United States. When your whole economy depends on the US Dollar, and when that US Dollar is worthless because Greenspan’s pals are printing more of it, no one in the US knows how much the dollar is worth. If you don’t know how much the dollar in your hand is going to be worth tomorrow, you can’t plan your business, and you can’t plan your budget. And if foreign creditors are paid with newly printed dollars, they will come back to the US to use those newly printed dollars to compete for the same quantity goods and services on the US market, competing against American buyers and consumers – which will drive the prices even higher, while the income levels in the US stay the same.
In short, Greenspan is saying: “The American government will use foreign funds to satisfy its ever growing appetite, and will use theft and robbery to defraud both its international creditors and its own citizens.”
Everyone else loses; the US government wins.